Attaining Budget revenue targets is difficult in a slowing economy

An exclusive report by BusinessLine on the fresh ‘strategy’ drawn up by the Finance Ministry to boost tax collections for the rest of this fiscal year makes for bemusing reading. Concerned about indirect tax collections falling well short of ambitious targets set out in the July Budget, the Finance Ministry is said to have called a joint meeting of all senior tax officials from the CBIC (Central Board of Indirect Taxes and Customs) and CBDT (Central Board of Direct Taxes) to exhort them to meet their revenue targets for this fiscal. In the meeting, the indirect tax administration has reportedly been given a GST collection target of ₹1.1 lakh crore for the remaining four months. Direct tax officials have been told that recent corporate tax cuts ‘cannot be taken as an excuse’ for mop-ups falling short of targets. This sort of exhortation to the administration to extract higher taxes from individuals and businesses at a time when incomes and profits are clearly under pressure is the perfect recipe for unfair demands and tax terrorism.

These actions reveal either an alarming lack of understanding or a wilful ignorance on the part of the incumbent government that tax collections cannot be divorced from the economy’s growth rate. India’s nominal GDP growth rate in the first six months of this fiscal has been at 7 per cent compared to the 12 per cent growth assumed in the Budget forecasts. This inflexibility on tax targets is completely at odds with the NDA regime’s avowed objective of facilitating ease of doing business. It could also end up worsening the slowdown by inflicting more damage on already fragile investor confidence. This insistence on targets also sits oddly with the Centre reportedly telling the Fifteenth Finance Commission just six months ago that its tax revenue growth was likely to fall substantially short of projections for the next five years.

Rather than insisting on meeting collection targets come what may, the Centre would be better off admitting that the 11 per cent growth in tax revenues projected in its July Budget can no longer be attained and letting the fiscal deficit slip, as suggested by State governments in the recent GST Council meeting. Options such as hiking GST rates to bridge the gap or trying to eke out higher taxes from compliant assessees with half-baked notices would be regressive in the current context. Simplifying the GST compliance burden in line with recent stakeholder feedback, even as anti-evasion measures are implemented should be the way forward. Many expert committees including the Tax Administrative Reforms Commission in 2015 have urged the Central government to set its Budget revenue collection targets after seeking frank feedback from the tax administration. Given that we’re in a dynamic economy, there’s also need for mid-year reviews of Union Budget estimates to allow its revenue and expenditure targets and fiscal deficit estimates to be adjusted in line with changing economic conditions.

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